Chesapeake's Permian assets get a look from Anadarko

Published 10:09 pm, Tuesday, May 15, 2012

Debt-ridden Chesapeake Energy said Tuesday that Goldman Sachs has agreed to raise the amount of an unsecured loan from $3 billion to $4 billion, and Anadarko Petroleum Corp.'s CEO said the company might be interested in some Permian Basin assets Chesapeake wants to sell to help its balance sheet.

Those developments came after Standard & Poor's lowered Chesapeake's credit rating and Moody's maintained a negative outlook, despite Chesapeake's announcement last week that it had obtained the Goldman Sachs loan to pay down a $4 billion revolving credit facility.

Chesapeake has said it plans to raise cash for its capital and operational expenditures by selling assets including the 1.5 million acres in the oil-rich Permian, believed worth more than $5 billion.

Under the terms of the Goldman Sachs agreement, Oklahoma City-based Chesapeake must use the proceeds from the Permian to pay off the $4 billion unsecured loan, leaving it with only $1 billion to $2 billion to cover other costs and pay down its $13 billion long-term debt. The company has said it plans to reduce this debt to $9.5 billion by year's end.

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Anadarko CEO Al Walker told reporters at the company's annual shareholders meeting that it will take a look at the Permian property.

"We are partners with them in a number of wells in West Texas," he said. "So where we are partners with them, we probably have in interest in looking at those specific locations."

Analysts say that the $1 billion bump announced Tuesday supports Chesapeake's claim that the Goldman Sachs loan, funded by a group of institutional investors, represents a vote of confidence, at least regarding the Permian sale.

"That Chesapeake has to take the loan is a sign of stress, but the fact that they are able to borrow a little extra is probably a good thing," said James Sullivan, an analyst with Alembic Global Advisors.

But Moody's raised concerns about the extent of Chesapeake's remaining financial obligations.

"Chesapeake's ability to remain in compliance with its debt covenants in the future and rising leverage metrics remain concerns for its ratings," Moody wrote in a credit research note Monday.